Correlation Between Equity Income and The Fairholme

Can any of the company-specific risk be diversified away by investing in both Equity Income and The Fairholme at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Equity Income and The Fairholme into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Equity Income Fund and The Fairholme Fund, you can compare the effects of market volatilities on Equity Income and The Fairholme and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Equity Income with a short position of The Fairholme. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Income and The Fairholme.

Diversification Opportunities for Equity Income and The Fairholme

0.69

Correlation Coefficient

Equity Income  The Fairholme

Poor diversification

The 3 months correlation between Equity and The is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Equity Income Fund and The Fairholme Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Fairholme and Equity Income is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Equity Income Fund are associated (or correlated) with The Fairholme. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Fairholme has no effect on the direction of Equity Income i.e., Equity Income and The Fairholme go up and down completely randomly.

Pair Corralation between Equity Income and The Fairholme

Assuming the 90 days horizon Equity Income Fund is expected to under-perform the The Fairholme. But the mutual fund apears to be less risky and, when comparing its historical volatility, Equity Income Fund is 1.01 times less risky than The Fairholme. The mutual fund trades about -0.13 of its potential returns per unit of risk. The The Fairholme Fund is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  3,190  in The Fairholme Fund on December 4, 2024 and sell it today you would lose (77.00) from holding The Fairholme Fund or give up 2.41% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Equity Income Fund  vs.  The Fairholme Fund

Equity Income

Risk-Adjusted Performance

Very Weak

Over the last 90 days Equity Income Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

The Fairholme

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Fairholme Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, The Fairholme is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Equity Income and The Fairholme

The main advantage of trading using opposite Equity Income and The Fairholme positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Income position performs unexpectedly, The Fairholme can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in The Fairholme will offset losses from the drop in The Fairholme's long position.

The idea behind Equity Income Fund and The Fairholme Fund pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Insider Screener module to find insiders across different sectors to evaluate their impact on performance.